HM Inspector of Taxes v Royal London Mutual Insurance Society Ltd.

For a transitional tax provision, “policy or contract for any life assurance business” naturally includes a reinsurance treaty unless the statutory context requires a narrower meaning. The “business” referred to is the taxpayer’s business, identified consistently in the opening and operative parts of the provision. Where the taxpayer is a reinsurer, the relevant date is therefore the date on which it entered the reinsurance treaty, not the dates of the underlying policies. A transitional provision concerning a different charging provision does not alter that construction.

The appeal concerned the construction of paragraph 55(2) of Schedule 8 to the Finance Act 1995. The taxpayer, a reinsurer, entered into a reinsurance treaty on 25 November 1994. Most of the underlying life-assurance policies had been issued before 1 November 1994.

The Special Commissioners and Peter Smith J held that paragraph 55(2) referred to the underlying policies, so that the relevant business was, to that extent, old BLAGAB. The appeal from Peter Smith J’s decision, reported at [2002] STC 1020, raised whether “policy or contract” referred instead to the reinsurance treaty.

1. Appeal allowed unanimously. The reinsurance treaty was new OLAB. The respondent was ordered to pay the appellant’s costs here and below.
2. On its natural meaning, “contract” in “policy or contract for life assurance” in paragraph 55(2) of Schedule 8 to the Finance Act 1995 includes reinsurance. “Life assurance business” is likewise wide enough to include reinsurance business.
3. Paragraph 57(2), concerning the commencement of section 442A(1) of the Income and Corporation Taxes Act 1988, did not require a narrower construction. It addressed a charging rule for investment return where a direct insurer reinsures a risk, whereas paragraph 55(2) concerns classification of the taxpayer’s business.
4. “The business” in paragraph 55(2) means the same business identified in the opening words: the taxpayer’s business. For a reinsurer, the relevant date is entry into the reinsurance treaty, not the dates of the underlying policies.
5. The phrase “policy or contract for life assurance” has the same meaning in paragraphs 55(2) and 55(3). Reading the old and new OLAB definitions together, applying paragraph 55(3) by reference to underlying policies would frustrate Parliament’s objective of removing the former requirement that the taxpayer’s business be carried on outside the United Kingdom.
6. Section 441B(1)(b) supported the natural construction. Its express reference to the underlying policy or contract in a reinsurance case indicated that a reinsurance contract would otherwise fall within “policy or contract”. The court rejected the submission that the phrase was a term of art limited to direct life assurance business. The alternative construction did not require determination.
7. Permission to appeal to the House of Lords was refused.

• Court of Appeal (Civil Division): Appeal allowed. The reinsurance treaty was held to be new OLAB. The respondent was ordered to pay the appellant’s costs here and below. Permission to appeal to the House of Lords was refused.
• High Court, Chancery Division: Peter Smith J held that paragraph 55(2) referred to the underlying policy or contract, reported at [2002] STC 1020.
• Special Commissioners: The Commissioners held that paragraph 55(2) applied to the extent that the underlying policies had been issued before 1 November 1994, treating the relevant business as old BLAGAB to that extent.